What Drives U.S. Treasury Re-use?

Sebastian Infante and Zack Saravay
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Sebastian Infante: https://www.federalreserve.gov/econres/sebastian-infante.htm

No 2020-103r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study what drives the re-use of U.S. Treasury securities in the financial system. Using confidential supervisory data, we estimate the degree of collateral re-use at the dealer level through their collateral multiplier : the ratio between a dealer's total secured funding and their outright holdings financed through secured funding. We find that Treasury re-use increases as the supply of available securities decreases, especially when supply declines due to Federal Reserve asset purchases. We also find that non-U.S. dealers' re-use increases when profits from intermediating cash are high, U.S. dealers' re-use increases when demand to source on-the-run Treasuries is high, and both types of dealers' re-use can alleviate safe asset scarcity. Finally, we document a sharp drop in Treasury re-use at the onset of the COVID-19 pandemic, with a subsequent reversal after the Federal Reserve's intervention to support market functioning.

Keywords: re-use; dealer; Treasury; collateral; rehypothecation; safe assets (search for similar items in EconPapers)
JEL-codes: E41 E51 E58 E63 G12 G24 (search for similar items in EconPapers)
Pages: 54 p.
Date: 2020-12-18, Revised 2021-08-24
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-103

DOI: 10.17016/FEDS.2020.103r1

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